United States Fidelity and Guaranty Co. v. Old Orchard Plaza Ltd. Partnership

672 N.E.2d 876, 284 Ill. App. 3d 765, 220 Ill. Dec. 59
CourtAppellate Court of Illinois
DecidedOctober 28, 1996
Docket1-93-3385, 1-94-0998 cons.
StatusPublished
Cited by23 cases

This text of 672 N.E.2d 876 (United States Fidelity and Guaranty Co. v. Old Orchard Plaza Ltd. Partnership) is published on Counsel Stack Legal Research, covering Appellate Court of Illinois primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
United States Fidelity and Guaranty Co. v. Old Orchard Plaza Ltd. Partnership, 672 N.E.2d 876, 284 Ill. App. 3d 765, 220 Ill. Dec. 59 (Ill. Ct. App. 1996).

Opinion

JUSTICE BUCKLEY

delivered the opinion of the court:

This case arises out of the trial court’s dismissal of intervening complaints filed by Brunswick Corporation (Brunswick) against United States Fidelity and Guaranty Company (USF&G), Jerry Burin, La Salle Partners Asset Management Limited Partnership (La Salle Partners), and a group of affiliated partnerships and corporations created and controlled by La Salle Partners (collectively, the La Salle Partner defendants). Brunswick had leased certain property owned during the term of the lease successively by each of the La Salle Partner defendants. The lease provided Brunswick with a right to vacate the premises without renewal and receive a "termination payment.” Brunswick exercised this right, but before the termination payment became due, Old Orchard Plaza Limited Partnership (OOPLP), the La Salle Partners defendant that owned the property at the time, defaulted on a mortgage loan it received from USF&G, and the trial court appointed Jerry Burin as receiver of the property. Brunswick never received the termination payment. USF&G brought an action against OOPLP, and Brunswick filed an intervenor’s complaint seeking a declaratory judgment that one or more of the defendants was liable for the payment.

The trial court dismissed all but one count of Brunswick’s complaint, and Brunswick appealed. Brunswick contends that the trial court erred in ruling that Brunswick failed to state claims for declaratory judgments that: (1) Brunswick has a vendor’s lien enforceable against OOPLP and USF&G; (2) USF&G was a mortgagee in possession; (3) Burin adopted Brunswick’s lease; (4) Burin’s failure to make the termination payment was a material breach relieving Brunswick of any obligation under the lease to pay real estate taxes; and (5) the termination payment provision was a covenant running with the land.

STATEMENT OF FACTS ’

On December 14, 1956, the United States Steel & Carnegie Pension Fund (Fund) leased 32 acres of land and existing improvements (the property) to International Minerals & Chemical Corporation (IMG). The lease was to expire on December 20, 2023, if all options to extend it were exercised.

On September 1, 1971, Brunswick acquired the leasehold estate from IMC. On April 27, 1983, Brunswick entered into a contract to sell its leasehold estate to Equity Associates (Equity). On May 1, 1983, the sale contract was closed with the execution of a sublease (master lease) in favor of Equity. As consideration for the sale of the leasehold, Equity agreed to lease the office space Brunswick occupied at the time back to Brunswick at a below-market rate pursuant a subsublease (lease). The lease provided that Brunswick would occupy the office space through April 1993, at which point it would have the option of extending the term of the lease for five years. If Brunswick exercised this option, it would have another option to extend the lease again for five more years. When Brunswick vacated the premises, Equity would pay Brunswick a termination payment of $2 million if Brunswick exercised no options to extend, $1 million if Brunswick exercised only one option, and nothing if Brunswick exercised a second option. The lease also stated that all covenants were binding on the heirs, successors, and assigns of both parties. On May 16, 1983, both the master lease and the lease were recorded with the recorder of Cook County.

In November and December 1983, Equity and the Fund restructured the master lease and agreed that the original leasehold estate would be assigned from Brunswick to Equity. The lease (of the office space from Equity to Brunswick) remained in full force and effect.

On December 5, 1985, Equity acquired fee simple title to the property from the Fund. In 1987, Equity sold the property to LP Equity. A short time later, LP Equity sold the property to OOPLP. Equity, LP Equity, and OOPLP are affiliates created and controlled by La Salle Partners. Brunswick’s complaint alleges that at all times from May 1, 1983, forward, the lease in favor of Brunswick continued in full force and effect and was adopted and accepted by each succeeding owner of the property.

Sometime prior to October 5, 1988, OOPLP sought a mortgage loan on the property from USF&G. On October 5, 1988, USF&G received a letter from its real estate consulting firm, Piedmont Realty Advisers, stating that if Brunswick vacated the premises in April 1993, Equity would be liable for the termination payment. The letter also advised that Brunswick would likely exercise its options to extend because the value of occupying the office space at a below-market rate exceeded that of the termination payment.

On November 30, 1988, Brunswick executed a letter, at USF&G’s request, certifying that upon any foreclosure sale or conveyance in lieu thereof, Brunswick would recognize the purchaser as its landlord under the lease as if such purchaser were the original landlord, "provided, however, that such purchaser shall in no way be liable or responsible for any alleged default by the Landlord pertaining to any period prior to the time that the purchaser acquires actual possession or control of the Property, or any portion thereof.”

On January 6, 1989, OOPLP received two mortgage loans on the property from USF&G totalling $23.5 million. On March 1, 1992, OOPLP defaulted on the mortgages by failing to pay real estate taxes, as required under the loan documents. On May 8, 1992, USF&G accelerated OOPLP’s total indebtedness. On May 12, 1992, Brunswick sent Equity and La Salle Partners written notice that it intended to vacate the office space on April 30,1993. The notice further demanded payment of $2 million upon its vacation.

On July 7, 1992, USF&G filed a complaint in the chancery division of the circuit court of Cook County against the La Salle Partner defendants alleging various fraudulent transfers of funds. The complaint sought assignment of rents and appointment of a receiver. It specifically stated that USF&G does not seek a foreclosure "at this time.” On August 5, 1992, the circuit court appointed Jerry Burin as receiver, and since that date he has demanded and received rents and managed the property. Brunswick later sent letters demanding the termination payment to USF&G and Burin. All parties denied liability.

On March 8, 1993, Brunswick obtained leave to intervene and filed an intervener’s complaint against all the La Salle Partner defendants, USF&G, and Burin. The complaint sought declaratory judgments that the termination payment provision was a covenant running with the land, that Brunswick had an equitable vendor’s lien on the property for the unpaid purchase price which took priority over any mortgage liens, that Burin had implicitly adopted the lease, that the termination payment was an ordinary operating expense of receivership, and that USF&G was a mortgagee in possession.

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Bluebook (online)
672 N.E.2d 876, 284 Ill. App. 3d 765, 220 Ill. Dec. 59, Counsel Stack Legal Research, https://law.counselstack.com/opinion/united-states-fidelity-and-guaranty-co-v-old-orchard-plaza-ltd-illappct-1996.